Beige Book: Economy Moving at Moderate Pace

CNN Summary of today’s Beige Book report: NEW YORK (CNNMoney) — Economic growth continued to expand moderately over the past few weeks, the Federal Reserve said Wednesday. In its latest snapshot of regional economic conditions, the Fed reported that manufacturing, retail and non-financial services sectors were strong in most regions.

But some sectors did not fare as well. The Fed said residential real estate market remained weak nationwide, as did commercial real estate construction.

The Fed did offer measured optimism on employment, another sector that has not matched the improvement of the economy at large. The Fed reported that the labor market “appeared to be firming somewhat” in most areas, but noted that wages remained stagnant.

Known as the Beige Book, the report summarizes economic conditions in the central bank’s 12 districts across the nation, and is released eight times a year. The report will help set the tone for the Fed policy meeting set to take place Jan. 25-26.

QE2 Still on Track — Buying Up Billions in Bonds
Lots of opinions on QE2, quantitative easing, ending in June 2011. As explained in the Financial Times last October,, QE is the practice of expanding a central bank’s balance sheet by buying long-term assets (in this case, bonds), in an attempt to drive down long-term interest rates, something that it only has reason to do once short-term interest rates are already at or close to zero.

The other goal is to curb any possibility of deflation ( so far, so good), yet keep inflation in check while stimulating the economy. A tall order indeed but it seems to be working. But, I heard a report today that commodities continue to rise and may affect inflation. Oil is on the rise and predicted by some to reach $100 a barrel by early Spring 2011.

Each morning Mr. [Josh] Frost and his team face a formidable task: they must try to buy Treasuries at the best possible price from the savviest bond traders in the business.

The smallest miscalculation, a few one-hundredths of a percentage point here or there, could unsettle the markets and cost taxpayers dearly. It could also embolden critics at home and abroad who say QE2 represents a dangerous expansion of the Fed’s role in the markets.

“We are looking to get the best price we can for the taxpayer,” said Mr. Frost, a buttoned-down 34-year-old in a striped suit and rimless glasses.

Whether Mr. Frost will reach that goal is uncertain. What is sure is that market interest rates have risen, rather than fallen, since the Fed embarked on the program in November. That is the opposite of what was supposed to happen, although rates might have been even higher without the Fed program.

Mr. Frost’s task is to avoid paying top dollar for bonds that could be worth less when the Fed tries to sell them one day.

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